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CLT UPDATE
Tuesday, March 20, 2012
Tax Commission: 'Tax expenditures = Exemptions from taxation'
"The state's $24.2 billion tax expenditure
budget in fiscal 2012 includes $5.7 billion in income tax
exemptions, $1.3 billion in corporate excise tax deductions, and
$17.2 billion in sales tax exemptions, such as breaks on food,
clothing and soda. By comparison, the state projects to collect
about $21.95 billion in tax revenue next fiscal year...."
— State House
News Service. Feb. 6, 2012
A group of state leaders has concluded that
Massachusetts needs to overhaul its tax system to eliminate many
breaks that siphon billions of dollars from public coffers,
setting the stage for a debate over how the state should
encourage economic growth.
A task force of elected officials and policy
makers, known as the Tax Expenditure Commission, plans to call
on Governor Deval Patrick and the Legislature to reduce the
number and amount of tax exemptions the state offers, according
to a preliminary outline of its report. The final report is
scheduled to be released by the end of next month....
The Department of Revenue recently found that
Massachusetts has roughly 200 tax credits, deductions, and
exemptions, covering things like funeral items and cement mixers
and costing the state more than $26 billion in revenue a year -
or $4 billion more than it collects. In most cases, a tax
deduction or credit allows taxpayers to pay less in state taxes
than they otherwise would....
But some observers say Massachusetts has far
fewer tax breaks than it seems at first glance. Some are common
deductions that most taxpayers take for granted, such as the
standard deduction for individuals or couples on annual income
tax returns.
Sales tax exemptions for real estate
transactions and most services, such as Internet access or legal
help, account for about half of the $26 billion the state
forgoes through various tax breaks. There is another $1 billion
in sales tax exemptions for liquor, fuel, and hotel rooms,
because they are typically covered by taxes specific to those
things.
“The idea that there are $26 billion in
giveaways is unrealistic,’’ said Joe Donovan, a tax attorney
with the Boston law firm Sullivan & Worcester....
The state could potentially use the savings
from eliminating deductions to lower overall tax rates,
something many business groups and tax watchdogs favor. The
state could also keep some of the additional revenue to fund
education, transportation, public health, and other programs,
Kaufman said.
The Boston Globe
Tuesday, March 20, 2012
Panel to urge fewer tax breaks in Mass.
Says exemptions cost state billions; others dispute impact on
coffers
A bipartisan panel of elected officials and
economic experts began a top-to-bottom review Wednesday of the
state's tax expenditures, promising the first thorough vetting
in decades of billions of dollars spent annually on tax breaks,
corporate deductions and sales tax exemptions.
Administration and Finance Secretary Jay
Gonzalez, who chaired the first meeting of the Tax Expenditure
Commission, said he was "excited" to get started. Gonzalez said
the state actively foregoes more in tax revenue each year than
it collects, but noted that tax breaks and deductions don't get
the same scrutiny as the state budget....
[Al Gordon, policy director for Treasurer
Grossman] said the treasurer has a particular interest in
reviewing the policies and current use of sunset clauses,
clawback provisions and disclosure requirements with regard to
tax expenditures.
Dempsey said it was important for the
commission "to get a handle on what is working and where are we
getting bang for our buck."
Brewer also cautioned about being clear with
the public what the commission was trying to accomplish.
"It's very important on messaging that we're
not sitting here trying to find ways to increase the tax burden
on citizens, but to peel back the layers of history," Brewer
said.
State House News Service
Wednesday, October 12, 2011
New state commission begins digging into state's tax code
Gov. Deval Patrick's budget chief said Monday
the number and cost to the state of tax breaks and exemptions
should be reduced as the commission reviewing the state's $24
billion tax expenditure budget voted Monday on a set of
principles to guide their work over the next couple of
months....
State officials use the phrase tax
expenditure to describe the numerous explicit exemptions from
taxation detailed in the state's tax code and approved over
decades. Every tax break has a cost and benefit to both the
state and the recipient, be it foregone revenue in exchange for
corporate job creation or a social policy such as limiting taxes
on necessities like food and clothing.
The state's $24.2 billion tax expenditure
budget in fiscal 2012 includes $5.7 billion in income tax
exemptions, $1.3 billion in corporate excise tax deductions, and
$17.2 billion in sales tax exemptions, such as breaks on food,
clothing and soda. By comparison, the state projects to collect
about $21.95 billion in tax revenue next fiscal year....
The panel unanimously adopted a set of five
principles that include a need to provide adequate revenue to
support a desired level of government, promoting economic
"welfare and opportunity," and being as simple and
administratively efficient as possible with clearly defined
public policy goals and beneficiaries of tax breaks....
Senate Ways and Means Chairman Stephen Brewer
raised a note of caution that a reference in the principles to
recognizing "differences in taxpayers' capacity to pay taxes"
could send the message that a graduated income tax is something
the commission is endorsing as worthy of consideration.
Though Brewer said he believed a progressive
income tax would be best left to the voter referendum process,
he said he would go along with the principle as long as Gonzalez
was "on the record" stating that the commission does not
necessarily endorse a study of the graduated income tax.
Gonzalez and Kaufman said they did not
believe the reference should be construed as alluding to a
graduated income tax, for which Gov. Deval Patrick has
frequently stated his support but declined to push as a policy
proposal.
State House News Service
Monday, February 6, 2012
Panel adopts principles as it assesses the costs, impacts of tax
breaks
What are tax expenditures? The introduction
to the FY13 Tax Expenditure Budget puts it this way:
"In its simplest form, a tax is an
across-the-board levy on a base, such as income, to which a
specific rate applies and for which no modifications exist.
Taxes are rarely levied in this manner, however. Instead, most
state tax codes incorporate a number of exemptions, deductions,
credits, and deferrals designed to encourage certain taxpayer
activities or to limit the tax burden on certain types of
individuals or endeavors. Known as 'tax expenditures', these
provisions can have a significant impact on state tax revenues."
The FY13 Tax Expenditure Budget (TEB) is more than $26 billion,
roughly $4 billion larger than projected FY13 revenues of nearly
$22 billion. The Commonwealth collects less in revenue than it
has chosen to forego.
Massachusetts Tax Expenditure Budget Commission
March 9, 2012
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Chip Ford's CLT
Commentary
How do you increase government spending without
raising taxes?
Simple. Just eliminate tax deductions and voilà
— more revenue pours into government
coffers.
First though, change the terminology. Any amount
of our income government allows us to keep for ourselves becomes a
"tax expenditure."
Because government doesn't take it away means
it's a government "expense." Such a government assumes an
inherent right to every cent we earn.
According to its balance sheet, what we are
permitted to keep is a cost government must bear.
For now.
In my humble mind a "tax expenditure" is what
government does with taxes it takes in. What I have left over after
it takes its big bite didn't cost government anything. So if
government never had it to spend, how can it be a tax expenditure?
If government is going to increase revenue for
more spending then where will it look first?
When asked why he robbed banks, infamous
depression-era bank-robber Willie Sutton reportedly replied,
"Because that's where the money is."
So where is the money, er, the most lucrative
"tax expenditures"?
According to the Tax Expenditure Commission, "The
state's $24.2 billion tax expenditure budget in fiscal 2012
includes $5.7 billion in income tax exemptions, $1.3 billion in
corporate excise tax deductions, and $17.2 billion in sales tax
exemptions, such as breaks on food, clothing and soda."
Well there we go, where the exemptions are most
populated: Within the income and sales taxes.
My goodness, the commission notes that "tax
expenditures" of $24.2 billion amount to even more than the
actual taxes already extracted from us, $22
billion this year. Can you imagine that — we're
keeping more than the state's collecting?
Tax simplification is
unarguably a good idea whose time arrived long ago. But let's not
over-simplify, or we'll get:
"How much did you earn?"
"Send it all."
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Chip Ford |
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The Boston Globe
Tuesday, March 20, 2012
Panel to urge fewer tax breaks in Mass.
Says exemptions cost state billions; others dispute impact on
coffers
By Todd Wallack
A group of state leaders has concluded that Massachusetts needs to
overhaul its tax system to eliminate many breaks that siphon
billions of dollars from public coffers, setting the stage for a
debate over how the state should encourage economic growth.
A task force of elected officials and policy makers, known as the
Tax Expenditure Commission, plans to call on Governor Deval Patrick
and the Legislature to reduce the number and amount of tax
exemptions the state offers, according to a preliminary outline of
its report. The final report is scheduled to be released by the end
of next month.
Commission members have not finalized the details, but several said
the report probably would not identify specific tax breaks to be
eliminated, leaving that for the Patrick administration and
lawmakers to decide.
The Department of Revenue recently found that Massachusetts has
roughly 200 tax credits, deductions, and exemptions, covering things
like funeral items and cement mixers and costing the state more than
$26 billion in revenue a year - or $4 billion more than it collects.
In most cases, a tax deduction or credit allows taxpayers to pay
less in state taxes than they otherwise would.
“There’s a suspicion that we’ve got too many’’
exemptions, said Jay Gonzalez, the state’s secretary of
administration and finance, who chairs the task force. “The
exception exceeds the rule.’’
Supporters of tax breaks, which often target particular industries,
argue they can attract businesses, encourage expansion, and create
jobs. Typically, economists favor simpler tax systems with fewer
special provisions and lower rates as more efficient and less likely
to encourage people to contort their behavior to take advantage of a
deduction.
“If you have a system with lots of tax deductions, people are going
to waste a lot of time and effort trying to fit into those special
provisions,’’ said Mark Robyn, an economist with the Tax Foundation
in Washington.
But some observers say Massachusetts has far fewer tax breaks than
it seems at first glance. Some are common deductions that most
taxpayers take for granted, such as the standard deduction for
individuals or couples on annual income tax returns.
Sales tax exemptions for real estate transactions and most services,
such as Internet access or legal help, account for about half of the
$26 billion the state forgoes through various tax breaks. There is
another $1 billion in sales tax exemptions for liquor, fuel, and
hotel rooms, because they are typically covered by taxes specific to
those things.
“The idea that there are $26 billion in giveaways is unrealistic,’’
said Joe Donovan, a tax attorney with the Boston law firm Sullivan &
Worcester.
The push to simplify the Massachusetts tax code mirrors similar
efforts at the national level to eliminate many deductions and lower
tax rates. President Obama and all the Republican presidential
candidates have issued proposals to overhaul the tax code, though
few observers expect Congress to make major changes this year.
In Massachusetts, officials say the number of special-interest tax
breaks has grown over the years because it is often politically
easier to give a group a tax break rather than to allocate
money for
it in the state budget. The reason: Reducing taxes is usually more
popular than increasing spending.
Once a tax break is adopted, it is difficult to remove because
lawmakers don’t have to renew it every year in the state budget. In
addition, each tax break typically has strong proponents who will
fight any repeal effort.
The aviation industry, for instance, blocked efforts to repeal a
sales tax exemption on aircraft parts, arguing aircraft owners could
fly to other states to repair their planes. The movie industry
blocked an effort to reduce the size of the film subsidy program in
2010, arguing that it boosts tourism and creates jobs - though the
Revenue Department found that the program has cost $142,000 per job
for state residents.
State Representative Jay Kaufman, cochairman of the Legislature’s
Joint Committee on Revenue, said he is optimistic the state will
eliminate some tax breaks, since there is growing agreement there
are too many.
“I would be surprised if we didn’t have tangible results within a
year,’’ said Kaufman, a Lexington Democrat and member of the tax
commission. “I think it’s going to take some leadership and
political will.’’
Kaufman and other policy makers argue that many of the tax breaks
complicate the tax code and give some taxpayers unfair advantages.
For example, if you need a new engine for your car, you will pay
sales taxes on the parts. But if you replace the engine for your
private jet, that is tax-exempt. Buy a hand-packed pint of Rocky
Road in an ice cream parlor, and you will pay the sales tax. Buy the
same pint at a grocery store, and you skip the tax.
Film a television commercial for a new beer and the state will pick
up as much a quarter of the production tab. But make a radio
commercial for the ale, and you won’t get any state aid.
“It doesn’t make any sense whatsoever,’’ Kaufman said. “I defy
anyone to read the list of exemptions [in the tax code] and come up
with some logic for it.’’
The state could potentially use the savings from eliminating
deductions to lower overall tax rates, something many business
groups and tax watchdogs favor. The state could also keep some of
the additional revenue to fund education, transportation, public
health, and other programs, Kaufman said.
State House News Service
Wednesday, October 12, 2011
New state commission begins digging into state's tax code
By Matt Murphy
A bipartisan panel of elected officials and economic experts began a
top-to-bottom review Wednesday of the state's tax expenditures,
promising the first thorough vetting in decades of billions of
dollars spent annually on tax breaks, corporate deductions and sales
tax exemptions.
Administration and Finance Secretary Jay Gonzalez, who chaired the
first meeting of the Tax Expenditure Commission, said he was
"excited" to get started. Gonzalez said the state actively foregoes
more in tax revenue each year than it collects, but noted that tax
breaks and deductions don't get the same scrutiny as the state
budget.
"I see our charge as making sure we have a rationale behind our tax
expenditure budget to meet the needs of this new world, but in these
difficult economic times also stretching every tax dollar as far as
possible," Gonzalez said.
Over the next six months, the commission will be focused on
completing a review of the state's $24.2 billion tax expenditure
budget, which includes a maze of deductions and tax exemptions for
businesses and individuals instituted over decades with limited
review.
In addition to a full breakdown and an historic account of each tax
expenditure, commission members decided to request from the
Department of Revenue a description of the revenue impact of each
expenditure, an explanation of intended beneficiaries, and a
comparison of each expenditure and the overall budget to other
states and the federal government.
Rep. Denise Andrews (D-Orange) attended the hearing, though she does
sit on the commission, and suggested the panel also benchmark
Massachusetts against other countries.
The state's tax expenditure budget totaled in fiscal 2012 included
$5.7 billion in personal income taxes, $1.3 billion in corporate
excise taxes, and $17.2 billion in sales taxes, which included
long-standing exemptions on items such as food and clothing. By
comparison, the state collects roughly $21 billion in tax revenue
each year that gets applied to the state's $30.5 billion budget.
"That's a significant amount of money, and this is a form of
spending," Gonzalez said.
Gonzalez said his goal for the commission is to meet publicly every
three weeks, and officials said members of the public are welcome to
attend and comment, though no formal public hearings were discussed.
The commission, created by the Legislature in the fiscal 2012
budget, is required to produce recommendations by the end of April
2012.
The state's tax expenditure budget fell under increased scrutiny
earlier this year after Evergreen Solar, which had been the
beneficiary of $21 million in grants and tax breaks from the Patrick
administration to grow jobs, announced plans to shutter its
manufacturing plant at Devens and later declared bankruptcy.
Fidelity Investments, which like other mutual fund companies has
benefited since 1996 from a change in the tax code that allowed
mutual fund companies to join manufacturers in calculating income
tax based on single-sales, also came under fire when it decided to
move 1,100 jobs out of state.
During an oversight hearing in March, legislative leaders questioned
the strength of the state's clawback provisions to recoup some of
the investment in Evergreen Solar. Sen. Mark Montigny, the chairman
of the Senate's Post Audit and Oversight Committee, also lamented
the fact that state law protects companies like Fidelity from having
to disclose tax information that could help officials gauge whether
tax policies work to create jobs.
The bipartisan, 11-member commission chaired by Gonzalez includes
Treasurer Steven Grossman, Auditor Suzanne Bump, Ways and Means
Chairmen Sen. Stephen Brewer and Rep. Brian Dempsey, Sen. Gail
Candaras, Sen. Michael Knapik, Rep. Jay Kaufman, Rep. Steven Levy,
and two members of the Governor's Council of Economic Advisors -
Northeastern University economist Alan Clayton-Matthews and Harvard
professor James Stock.
Both Grossman and Bump sent representatives from their offices to
the first meeting, and Candaras and Knapik also missed the meeting,
though staff members were present.
"You get to $24 billion piece by piece, and had you started out
looking at the whole pool you might have done it differently. The
treasurer is looking at this as zero-based budgeting," said Al
Gordon, policy director for Treasurer Grossman.
Gordon said the treasurer has a particular interest in reviewing the
policies and current use of sunset clauses, clawback provisions and
disclosure requirements with regard to tax expenditures.
Dempsey said it was important for the commission "to get a handle on
what is working and where are we getting bang for our buck."
Brewer also cautioned about being clear with the public what the
commission was trying to accomplish.
"It's very important on messaging that we're not sitting here trying
to find ways to increase the tax burden on citizens, but to peel
back the layers of history," Brewer said.
State House News Service
Monday, February 6, 2012
Panel adopts principles as it assesses the costs, impacts of tax
breaks
By Matt Murphy
Gov. Deval Patrick's budget chief said Monday the number and cost to
the state of tax breaks and exemptions should be reduced as the
commission reviewing the state's $24 billion tax expenditure budget
voted Monday on a set of principles to guide their work over the
next couple of months.
Though the high-level Tax Expenditure Commission was cautious not to
send too many signals that might restrict future recommendations,
Administration and Finance Secretary Jay Gonzalez said the idea of
limiting tax expenditures to those that are effective in promoting
the state's economic health will be central to the panel's work.
The commission members also decided to make full public disclosure a
centerpiece of their mission, with Treasurer Steven Grossman
suggesting the tax expenditure budget be treated like other state
spending and put online similar to the newly launched "Open
Checkbook" website.
State officials use the phrase tax expenditure to describe the
numerous explicit exemptions from taxation detailed in the state's
tax code and approved over decades. Every tax break has a cost and
benefit to both the state and the recipient, be it foregone revenue
in exchange for corporate job creation or a social policy such as
limiting taxes on necessities like food and clothing.
The state's $24.2 billion tax expenditure budget in fiscal 2012
includes $5.7 billion in income tax exemptions, $1.3 billion in
corporate excise tax deductions, and $17.2 billion in sales tax
exemptions, such as breaks on food, clothing and soda. By
comparison, the state projects to collect about $21.95 billion in
tax revenue next fiscal year.
With an April reporting deadline looming, the commission now plans
to dive into some of the more specific areas of tax policy,
including a review of the expenditures on the books and possible
requirements that all tax breaks sunset and include "clawback"
provisions.
While the work of the commission, which began back in October, has
the potential to shape tax policy debate on Beacon Hill with budget
deliberations beginning in the spring, it remains to be seen how
aggressively the commission will address tax reform and how its
ideas will be received by legislative leaders.
The 11-member commission, including eight lawmakers, met Monday to
debate and vote on a set of guiding principles as it moves closer to
making recommendations in April.
The panel unanimously adopted a set of five principles that include
a need to provide adequate revenue to support a desired level of
government, promoting economic "welfare and opportunity," and being
as simple and administratively efficient as possible with clearly
defined public policy goals and beneficiaries of tax breaks.
The principles call for the goal of each tax expenditure in the
state budget to be clearly definable and subject to periodic
cost-benefit analyses.
"It does sound like common sense, but it's something the state has
not been doing," Gonzalez said.
At the urging of Revenue Committee Co-chairman Rep. Jay Kaufman and
others, the commission dropped an explicitly stated goal of reducing
the total number of expenditures and foregone revenues from a draft
of its principles, but Gonzalez said the intent did not change.
The principle now states: "In the interest of simplicity and equity,
the total number of tax expenditures and the total amount of
foregone revenues from the tax expenditure budget should be limited
to those that are highly effective at achieving the related public
policy purpose."
"To me, that says we should have a smaller tax expenditure budget
than we do right now," Gonzalez told the News Service after the
meeting.
Sen. Michael Knapik and Rep. Steven Levy, the two Republicans on the
panel, said they did not think reducing the tax expenditure budget
should necessarily be the goal of the commission.
"The charge was not to necessarily remove some of the tax
expenditures, but I think to better understand them and create that
transparent system where you bring the rationale to 20 to 30 years
of the Legislature layering on and layering on," Knapik said.
Levy said he hoped the commission could get at the "lack of
measurability of the effectiveness" of tax credits.
Senate Ways and Means Chairman Stephen Brewer raised a note of
caution that a reference in the principles to recognizing
"differences in taxpayers' capacity to pay taxes" could send the
message that a graduated income tax is something the commission is
endorsing as worthy of consideration.
Though Brewer said he believed a progressive income tax would be
best left to the voter referendum process, he said he would go along
with the principle as long as Gonzalez was "on the record" stating
that the commission does not necessarily endorse a study of the
graduated income tax.
Gonzalez and Kaufman said they did not believe the reference should
be construed as alluding to a graduated income tax, for which Gov.
Deval Patrick has frequently stated his support but declined to push
as a policy proposal.
Auditor Suzanne Bump also said capacity to pay could refer to
corporate tax structures as well, where start-ups often don't have
the financial ability to pay rates equal to more mature companies.
Brewer also questioned whether the call for "periodic review" by the
Legislature and governor of tax expenditures meant adding sunset
clauses to all tax expenditures. Gonzalez said whether tax breaks
should sunset and be subject to legislative renewal will be
something on the table for discussion before the commission makes
final recommendations.
Jim Klocke, the executive vice president of the Greater Boston
Chamber of Commerce, said the chamber was pleased to see a
recognition of economic competitiveness included in the principles,
as well as the importance of taxpayer confidentiality as it relates
to public disclosure.
"We need to be mindful of the competitiveness issue all the time
throughout this process. It has a big effect on business and jobs,"
Klocke said.
Klocke predicted the work of the commission would intensify in the
coming weeks now that Gonzalez and his team have completed work on
the governor's budget proposal for fiscal 2013.
"We all know how much revenue is associated with each tax
expenditure, but the question of what kind of effects those have and
how those are measured are the big questions that will come over the
next few months," he said.
Massachusetts Department of Revenue
March 9, 2012
Tax Expenditure Budget Commission data on line
The 11-member Tax Expenditure Commission has posted a wide array of
materials on DOR’s website in an effort to make its work as
transparent and accessible as possible.
What are tax expenditures? The introduction to the FY13
Tax Expenditure Budget puts it this way:
"In its simplest form, a tax is an across-the-board levy on a base,
such as income, to which a specific rate applies and for which no
modifications exist. Taxes are rarely levied in this manner,
however. Instead, most state tax codes incorporate a number of
exemptions, deductions, credits, and deferrals designed to encourage
certain taxpayer activities or to limit the tax burden on certain
types of individuals or endeavors. Known as 'tax expenditures',
these provisions can have a significant impact on state tax
revenues."
The FY13 Tax Expenditure Budget (TEB) is more than $26 billion,
roughly $4 billion larger than projected FY13 revenues of nearly $22
billion. The Commonwealth collects less in revenue than it has
chosen to forego.
The Commission is scheduled to issue a report by April 30. Agendas
and minutes from Commission meetings are included on the web
page, as are historic looks at TEBs from previous years and TEB's
from
other states.
The Commission unanimously approved a Statement of Principles (found
on the agendas and minutes page) on Feb. 6 which makes it clear that
the Commission believes tax expenditures merit regular scrutiny and
should be subject to periodic cost-benefit analysis and review by
the Executive and Legislative branches.
The eleven members of the commission are its chair, Administration
and Finance Secretary Jay Gonzalez, Auditor Suzanne Bump, Treasurer
Steven Grossman, House Ways and Means Committee Chair Brian Dempsey,
Senate Ways and Means Committee Chair Stephen Brewer, House Revenue
Committee Chair Jay Kaufman, Senate Revenue Committee Chair
Katherine Clark, Rep. Steven Levy (designee of House Minority Leader
Brad Jones), Sen. Michael Knapik (designee of Senate Minority Leader
Bruce Tarr), Alan Clayton-Matthews (member of the Governor’s Council
of Economic Advisers), and James Stock (also a member of the
Governor’s Council of Economic advisers).
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Citizens for Limited Taxation ▪
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